The Cost of Compassion

NJ Charity Care Program

The uninsured represent about 8% of the US population under retirement age, a number roughly halved by the Affordable Care Act. Concern for providing health care for the impoverished is embedded in NJ law, which stipulates:

“No hospital shall deny any admission or appropriate service to a patient based on their inability to pay or source of payment, and … patients determined to be eligible for charity care shall not receive a bill for services or be subject to collection procedures.”

Over half of non-insured individuals postpone care, if possible, but emergencies often compel them to seek hospital care. The New Jersey Charity Care Program is designed to ensure healthcare access for these individuals, while providing some financial support from the State to hospitals that disproportionately serve them. [1]

Disproportionate Share Hospitals (DSH), those serving a disproportionate number of low-income patients, receive annual subsidies from NJ’s Health Care Subsidy Fund (HCSF). HCSF, in turn, is funded by NJ taxpayers from the State’s General fund and a “tax” on all NJ hospitals’ operating revenue. Reimbursement is not a direct, dollar-for-dollar payment, but rather is made on a sliding scale based on each hospital’s relative percentage of charitable care. The top 10 hospitals are reimbursed approximately 96% of costs paid at Medicaid rates. While the State aims to provide significant reimbursement, it acknowledges that they have failed to meet expectations, with some hospitals receiving as little as 1%. The HCSF allows hospitals to challenge their subsidy.

While the program seeks to strike a balance between access and funding, hospitals have argued that it falls far short of sustainability. This conflict culminated in a legal challenge testing the boundaries of constitutional protections for property and fairness.

Englewood Hospital & Medical Center v. State

Unsurprisingly, determining the appropriate amount of financial support is a contentious issue that has recently been subject to judicial scrutiny.

The plaintiffs were a group of Disproportionate Share Hospitals; the defendant, the State of New Jersey, specifically the Departments of Human Services and Health, which were responsible for New Jersey’s charity care program. 

The hospitals argued that the charity care program requires them to provide medical care regardless of a patient’s ability to pay. Because they are required to provide treatment, including “space, supplies, and services,” often without adequate reimbursement, they claim they have been subjected to an “unlawful taking” in violation of federal and State constitutional protections. 

Both the NJ constitution and “the Takings Clause” of the Fifth Amendment provide that “private property” shall not “be taken for public use, without just compensation.” The trial court dismissed some of the plaintiff’s claims because they had not “exhausted” the administrative challenges provided by law, and rejected the remainder, holding that a taking had not occurred. 

On appeal, the intermediate appellate Court concurred. The plaintiffs then appealed to the NJ Supreme Court. But does uncompensated medical service fall within the protections of the “Takings Clause?”

The Takings Clause: What Counts as Property? 

The Takings Clause is designed to protect private property owners from unjust governmental appropriation without due compensation. A “per se “taking” involves: 

• deprivation of property interests via outright physical appropriation of real or personal property, e.g., eminent domain,
• governmental occupation of property triggering denial of the owner’s right to exclude others, or
• removal of all economically beneficial uses of [their] property,

Alternatively, a “regulatory” or “use-restriction” taking may involve a constraint on the owner’s ability to use the property or deprive them of some economic benefits, e.g., an easement to allow the public to cross the property to get to the public beach

The core dispute in this case was whether the allocation of space, services, and care products necessary to comply with the charity care program constituted a taking by the government.

NJ’s highest court ruled that it did not. 

No Taking, Says the Court

While the Court acknowledged that hospitals had a protected property interest, it held that mandated charity care did not rise to a “per se taking” because the law imposed no additional burden on hospitals, which are already open to the public and in the business of providing medical care. Regarding the occupation of hospital facilities, the court found that no transfer of title or ownership had occurred. Similarly, regarding medical services, the court viewed hospital care as a professional obligation "rationally incidental" to the right to practice medicine. Finally, the court held that medical supplies required for charity care did not require hospitals to "physically set aside" products, supplies, or goods,  such that a taking occurred

The court also rejected claims that charity care constituted a regulatory taking, noting that the program does not deprive hospitals of all economically beneficial use of their property, as they continued to treat insured patients and receive subsidies.  

While the court agreed the plaintiffs presented strong evidence that charity care negatively impacted their profits, it emphasized that providing such care is a long-standing tradition in medicine, supported by significant tax benefits that reduce expectations of reimbursement for this obligation [2]. They write that “the highly regulated nature of the hospital industry and the paramount public interest it serves outweigh the program’s adverse economic impact on the hospitals, and that the charity care program serves a vital public interest by ensuring access to high-quality, affordable hospital care.

The standard the court used for analysis was strikingly subjective, 

“on balance, the character of the government action providing for the common good outweighs any adverse economic impact .…Accordingly, charity care does not go “too far” so as to become an unconstitutional “regulatory” taking requiring just compensation.  Rather, it “adjust[s] the benefits and burdens of economic life to promote the common good.” 

Just Compensation

While the court acknowledged the financial strain on hospitals providing care to low-income patients with insufficient subsidies as “unfair,” albeit not unconstitutional, it ultimately cowered behind its inability to rectify the situation. Instead, it suggested that the plaintiffs could seek more funding from the legislature, contest the amounts received in an administrative procedure, or lobby their legislators to change the appropriation, noting their rights to do so.

The Moral Dilemma: A Question of Justice, Not Just Law

The law and legal tradition provides that “every acute care hospital in this State is required to provide care to anyone who seeks care without regard to the ability to pay”, that “no hospital shall deny any admission or appropriate service to a patient based on their inability to pay or source of payment,” and that those eligible for charity care “shall not receive a bill for services or be subject to collection procedures”. However, these moral and legal imperatives come at a significant cost—borne disproportionately by hospitals and providers.

At issue here was not the necessity of care, but the financial burden imposed on hospitals by the State’s charity care mandate. The ethical and economic dilemmas presented expose a persistent American dilemma: who pays for the healthcare of those caught in the widening gap between Medicaid eligibility and the affordability of commercial coverage – especially when state coffers are depleted.  

The “Big, Beautiful, Bill” will shift more healthcare funding from the federal to the state governments. Since states must balance their budgets, any shortfalls in state funding occasioned by diminished federal largesse or a more “just” DSH compensation must be covered by new taxes or reallocated funds, leaving policymakers to wrestle with the ethics of social responsibility.  

Ultimately, this case forces a broader reckoning: If the right to healthcare is a societal value, as New Jersey’s courts suggest, who bears the costs? A handful of hospitals standing alone, or equitable community allocation via transparent and considered legislative deliberation? In this light, the debate over just compensation becomes more than a legal technicality; it becomes a test of how we define justice in a society that prides itself on helping its neighbors, especially those who, despite their best efforts, can’t afford to help themselves.

[1] Individual or family income less than or equal to 200 percent of the US Department of Health and Human Services (HHS) Poverty Guidelines. Individual assets not exceeding $7,500 and, if applicable, family assets not exceeding $15,000

[2] Exemptions from state income, property, and sales taxes for non-profits, and federal income tax exemptions for for-profits when considering charity care levels.